Pangs of volatile oil prices hit global economy
THE fluctuating and volatile oil prices may have hit global economy’s prospects of coming out of the doldrums, with Nigeria and other exporting countries reeling from the reality of scaled-down Gross Domestic Products (GDP) growth rate.
The global dimension of the crisis derived from the fact that crude oil remains the largest internationally traded commodity both in volume and value terms, with the fortunes of the hydrocarbon economy linked to prices of other fuels, energy-intensive goods and services.
The rebound of oil prices to $50 a barrel yesterday, has not assuaged the low feelings among the producing nations, as the rise, which was ascribed to the violence in Yemen, could be compromised this week by yet-to-abate economic crisis in China in particular and Asia in general.
Already, member of the Organisation of Petroleum Exporting Countries (OPEC) have scripted a brace-up agenda against the pangs of the volatile prices of the commodity, even as they hoped that curb in crude oversupply towards the end of the year, could make the market to “correct itself.”
Staying on the “reality” stage, Arab OPEC members have cut their prices expectations for this year, preparing to tolerate cheaper crude for longer, to defend market share and curb rivals’ output.
While it appeared on the surface level that decline in oil prices would benefit importing nations, the reality that petrol dollar is normally recycled to import goods and services from other nations, may have spread the pangs of the crises further.
In Nigeria, the vulnerability of the nation’s economy to external shocks has started to manifest with the volatile oil prices, which were on the downward spiral for several weeks.
For instance, the naira has been under pressure in the foreign exchange market, while the foreign reserve too has been in dire straits.
The Director-General of Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf observed that the hydro-carbon economy’s price crisis has assailed federal and state governments’ fiscal stability, “as reflected in the inability of many MDAs (Ministries, Departments and Agencies) at all levels of government to meet their financial obligations to contractors and civil servants.
He added: “The incidence of abandoned projects is on the increase. Capital flow reversals have intensified, manifesting especially in steady declines in the stock market. The implications of this scenario for the macro economy are quite profound. From a fiscal perspective, these are certainly not the best of times for the economy.”
According to the National Bureau of Statistics, growth in the nation’s economy slowed in the second quarter, due to the slump in the oil prices.
Specifically, the GDP expanded only at 2.35 per cent on yearly basis, during the period, against 3.96 per cent in the previous quarter.
The oil price slump had forced the continent’s top crude producer to cut its budget and deplete foreign currency reserves to unsuccessfully stem naira’s depreciation, which eventually fell by 7.8 per cent against the dollar this year.
In the capital market, the All Share Index fell on the Nigerian Stock Exchange to the lowest level in six months last week, on concern that oil prices, which then hit a six-year low, would deepen the nation’s economic challenges.
Also, manufacturing output’s growth went down by 3.8 per cent last quarter, compared with 14 per cent rate experienced a year ago.
Only last week, eminent lawyer and statesman, Chief Richard Akinjide, at the yearly conference of International Commercial Arbitration Congress in Lagos, warned that “it would take the next 25 years for the price of oil, in nominal value, to return to its 1980 level.”
He added that “for the next 25 years, the booms and slumps of Nigeria’s economy would be dictated by the dull fluctuations of the international market.”